Pensioners win in cost of living stakes

The cost of living has grown more slowly than the general rate of inflation for many people over the past year and pensioners’ costs are rising at the slowest rate on record.

Pensioners’ cost of living rose 1.1 per cent, compared with a 1.6 per cent increase in the consumer price index for the year to the end of the March quarter, new figures show.

The cost of living for self-funded retirees grew 1.3 per cent and costs for employees by 1.2 per cent.

The only ones to have suffered the full effect of cost rises are the unemployed and those on other government benefits. Their costs rose by 1.6 per cent, the same as the inflation rate.

The figures are taken from analytical cost of living indexes released yesterday by the Australian Bureau of Statistics. They are designed to reflect real daily cost of living pressures rather than the more theoretical CPI.

The figures are based on the consumption patterns of each group and, unlike the CPI, they include rises and falls in mortgage and other interest rates. House purchase costs are excluded.

The extent to which the CPI overstates the actual cost of living for non-home buyers is likely to grow in coming months as interest costs continue to fall in response to the Reserve Bank of Australia’s decision to cut rates by 0.5 of a percentage point.

Pensioners will be among the big winners in the current cycle. In the past year, their cost of living has grown at the slowest rate since data has been compiled, as they benefited from the dramatic fall in food costs.

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Yet their incomes are rising much faster. This is because aged pensions are indexed at the higher of the CPI or average weekly earnings, which rose at 3.8 per cent in 2011. So the real value of the pension could thus have increased by about 2 per cent over the past year.

The chief executive of the National Seniors retirees lobby group, Michael O’Neill, said he was surprised by the figures.

“All in all the feedback in terms of cost of living pressures of utilities and insurance and health costs, there has been no reduction in them," he said.

He said the decision to link pensions to average weekly earnings was taken some time ago because it was generally accepted that pension costs were rising faster than the CPI. But he agreed it appeared this was not the case now.

A separate study by NATSEM AMP released yesterday found that the cost of living had risen much more slowly than inflation over the past two decades.

In real terms, the average household was about 20 per cent a week better off and this was spread fairly evenly across income groups.

NATSEM director Ben Phillips said that while political debate focused on the rises in the cost of essentials such as petrol and utilities, the share of a family’s income spent on necessities had not changed in the past two decades, at about 38 per cent. This left more to spend on discretionary items such as travel and services.

It was hard to explain complaints about cost of living pressures. “It is more about having bigger lives and higher expectations than about cost of living pressures," he said.

The carbon price was not expected to alter the cost of living. Mr Phillips said price increases of about 0.7 per cent would be balanced by compensation from reduced income tax and higher government payments. This would adequately compensate low and middle income families, those most at risk of cost of living pressures.

He said that focusing policy on a narrow cost of living debate about the price of electricity or petrol missed the real pressure points facing households, such as work-life balance.

It also took the spotlight off other more pressing matters that would actually help to maintain Australia’s enviable standard of living for years to come.